Ho Hup wins back its 60-acre land

KUALA LUMPUR: Ho Hup Construction Co Bhd has won back a piece of prime land in Bukit Jalil after the Kuala Lumpur High Court declared null and void a joint development agreement (JDA) that was long deemed unfavourable by the company's existing shareholders.

Ho Hup's previous board of directors, led by former deputy chairman Datuk Vincent Lye Ek Seang, had inked a JDA between the PN17 company's 70% subsidiary, Bukit Jalil Development Sdn Bhd (BJD), and a wholly-owned entity of Malton Bhd, Pioneer Haven Sdn Bhd, for the development of the 60-acre freehold land.

The JDA was signed just before an EGM on March 17, 2010, which saw the removal of Lye, then group managing director Lim Ching Choy and four other directors.

The EGM was called by a major shareholder and former managing director Datuk Low Tuck Choy, the son of Ho Hup's late founder Low Chee, following a protracted boardroom tussle with the faction led by Lye.

Under the JDA, Pioneer Haven was to assume financing responsibilities while BJD would be entitled to 17% of the project's gross development value (GDV), with a minimum of RM265 million to be distributed over various phases of the project.

BJD acquired the land for RM93 million (the original cost) in September 1995. The land had a net book value of RM122.46 million as at Dec 31, 2010, including development costs.

Ho Hup shareholders strongly opposed the JDA on grounds that their approval was not sought for the deal which was not favourable to the company as returns from the land would have been higher if Ho Hup had opted to sell the land or develop it on its own.

Industry observers noted that Ho Hup, despite being the landowner, was entitled to only 17% of the project's profits. Indeed, the Bukit Jalil land holds the key to Ho Hup's revival. The company's new board filed a lawsuit in April last year in an effort to rule out the JDA.

"This is a fantastic result for the company. We can now be more certain of our restructuring strategy and this bodes well with the plans we have for the land. This means we have passed a major hurdle, though there are still a few steps to go," executive director Derek Wong told The Edge Financial Daily on Tuesday, June 7.

The High Court on Tuesday found that in committing BJD to the JDA, the previous board of directors had acted in breach of their duties to the company, and Pioneer Haven was said to have knowingly assisted in these breaches, according to Ho Hup's announcement to Bursa Malaysia.

The High Court also said the JDA translated into a disposal of BJD's land which would have required shareholder approval under section 132C of the Companies Act, the statement added.

The decision effectively gives Ho Hup the option to develop the land on its own, as Wong noted the land could produce a GDV of RM4 billion to RM4.5 billion. More importantly, it allows the company to manage its own cash flow and better prepare its regularisation plan, due on June 19 after the deadline was extended from May 1.

"We could not prepare earnings forecasts under the JDA which was scantily written and not well-crafted. It had little information pertaining to cash flows and no commitment to developments that were meant to be undertaken. The court decision allows us to be more certain of our restructuring plans as we have more control over the situation," said Wong.

He added that a previous private caveat by Pioneer Haven preventing Ho Hup from selling the land to a third party was expunged by the High Court.

"With the JDA reversed, full development rights of the valuable prime piece of land reverts back to BJD, which means we can fully leverage on this prized asset to restructure the company's debts and regularise our operations and financial condition," he said.

As at March 31, Ho Hup had borrowings of RM84 million. The company had in March proposed several measures to improve its financial position in order to lift the company from its PN17 status.

The proposals included a par value reduction by 50% followed by a rights issue of 51 million new shares with detachable warrants and a private placement to raise proceeds of RM30.6 million.

"The regularisation plan we had before was prepared for the scenario if we lost the case. At the moment, we are speaking to our merchant bankers and are in the midst of putting it together. We hope to meet the deadline," said Wong.

The battle is not over for Ho Hup, as Malton is appealing against the court's decision and a hearing on the matter is scheduled for June 17.

Meanwhile, the company has received conditional approval from DBKL for plans for the 60-acre land, according to Wong.

"The masterplan we have has been conditionally approved by DBKL. We are required to fulfil certain conditions relating to the payment of contributions. Once we have received full approval, we will issue building plans and development orders. We are looking to develop the land ourselves although we are open to other options as to how best to manage it," he said.

The masterplan involves a mixed commercial and residential scheme with a potential GDV of RM4.2 billion, to be rolled out in six phases over 10 years.

"The plan involves 8 million square feet of net saleable area with 170 office units in five- and eight-storey buildings, six blocks of service apartments, a commercial strip of shops and a hotel," said Wong.

He added that Ho Hup planned to rely on borrowings and a proposed rights issue for financing.

The company hopes to begin the first phase in 4Q2011.

For its most recent quarter ended March 31, Ho Hup's net profit improved to RM32,000 from a loss of RM4.28 million the year before while revenue rose 18% to RM6.7 million from RM5.68 million on the back of a reduction in administrative and operating costs by RM1.4 million and RM6.6 million respectively.

Ho Hup rose to a 14-month high on Tuesday, closing 11 sen up at 86 sen with 3.69 million shares traded.